The upcoming general election on December 12 has caused major political strain throughout Britain, which has had a knock-on effect on the UK stock market, impacting the share prices of companies such as BT Group (LSE:BT-A). Although the Conservatives appear to be ahead in the polls, they are facing a considerable backlash and it’s therefore unclear who will ultimately gain power.
In mid-November Labour leader Jeremy Corbyn announced he wants to nationalise BT’s broadband division and provide free super-fast broadband to every home and business in the country. In light of this, the BT share price nosedived.
If Labour wins, then BT could face a very different future, but nationalising BT’s broadband is not a quick and easy task to implement and it’s unlikely to affect BT soon. Fellow Fool Karl Loomes took a closer look at the impact of the election on BT at the end of November and he doesn’t see it as anything to be too concerned about.
National treasure or trash?
BT has been a household name in the UK for several decades now and although I think calling it a national treasure would be a step too far, I do believe it has a prominent place in society. As I wrote back in October, BT is attempting to improve on its dire customer service reputation, by making some serious changes. This includes returning its call centres to the UK by next year.
Former WorldPay boss Philip Jansen replaced Gavin Patterson in early 2019 as the CEO of BT and since then has been on a cost-cutting mission to help reduce debt (which is presently at a 72% ratio) and improve the company image. Under Patterson’s reign, BT fell into troubled times when an accounting scandal in Italy was uncovered in January 2017. This resulted in a share price collapse, from which it has never recovered.
The share price is around £1.85, up from a low of £1.58 in August, but down from a high of £3.90 in December 2016. Its price-to-earnings ratio is 8, which indicates value for money and is considerably below the FTSE 100 standard of 15. Its dividend yield is an exceptional 8.4% and earnings per share are 22p.
There are rumours that the dividend is at risk of a cut because the costs of rolling out fibre broadband are excessively high and this must be completed by a 2025 deadline. However, at 8%, even a cut could still leave an attractive dividend yield.
Incentives
Jansen has made a few changes since stepping into the ring and in May, he said BT would give £50m worth of shares a year to staff to help motivate them. I think this gesture could be to placate workers since extreme pay-outs for executives in comparison with the general workforce have become a political bargaining chip.
Earlier this week, the Financial Times reported that BT also plans to stop its performance-related bonus scheme for management. Instead, it will be replaced with a smaller guaranteed payout.
I still think BT has a lot to offer shareholders, particularly at these low price levels, but it’s not out of the woods yet and the general election has again put it on shaky ground with the prospect of nationalisation. I’d wait and see.
